Performance below expectations

The overall performance of major cement companies were below expectations owing to weak demand and unseasonal rains.

Nationwide, all cement producers experienced lower offtake; thereby impacting sales volumes, mainly due to weak demand in infra projects and unseasonal rains. Sales volumes have been down to the tune of 10-11 per cent y-o-y in general. Resultantly, the capacity utilisation continues to be lower than expectations.

On the price front, the overall prices in the North region remained soft and continued to be under pressure, thereby impacting EBIDTA margins of the manufacturers. On the other hand, the prices in South remained higher and improved earnings of cement producers.

The coal block auctioning started in the quarter and few of cement companies like UltraTech, ACC, Ambuja, Reliance Cement, Jaiprakash Associates etc, have been allocated the blocks. It will take some time to operate the coal mines. During the last quarter ending March, operating profit of the largest cement producer UltraTech Cement was better compared to its peers. The realisations from west and especially southern region helped to get better revenues. Also, fall in energy and logistic cost attributed to better margins. However, the company´s net profit remained under pressure owing to weak demand scenario. The manufacturer commissioned a jetty in Gujarat and bulk cement terminal near Pune.

For ACC Ltd, sales volumes dropped by 10 per cent y-o-y, lowest in last few quarters. The decline in sales volumes was attributed to poor market conditions. However, operating profit for the period stood at higher numbers than earlier and happens to be the highest in last couple of quarters. The main contributors for better profit are improved realisations, lower slag procurement prices and cost control efforts specially on power and fuel, increase in earnings from blended cements and exposure to southern markets. The manpower cost of the company went down considerably.

Ambuja Cements, the third major player, continues to be the lowest cost producer. Sales volumes of Ambuja declined by 11 per cent y-o-y leading to lower profits. The positive feature of Ambuja is better price management, despite lower sales volumes sold in southern markets.

The company said it will start mining in the Gare Palma coal block, which was bagged during the recent coal auctions, in 2018 and the capex for the development of the block will be at Rs 370 crore.

The other notable player is Shree Cement. Surprisingly, the company´s sales volumes increased y-o-y, with lower realisations. Increase in volume can be attributed to the commissioning of new capacities at Chhattisgarh. The other contributor to business is power generation. It showed lower performance and reduced earnings. However, operating profit declined y-o-y owing to the overall gloomy market conditions, in spite of increase in sales volumes. With the addition of acquired assets from Jaiprakash Associates and expansion within the group, the capacity of Shree Cement will go up in the years to come.

Source: Various reports released in the month of April 2015 by different analysts.